Christophe Blot, Jérôme Creel, Paul Hubert, Fabien Labondance, Xavier Lagot

Euro Area Inflation and ECB Policy in a Global Environment

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Keywords: Inflation; Global Factors; Domestic Inflation; Principal Component Analysis; Euro Area.

This paper contributes to the literature investigating the role of global factors in determining Euro area inflation, using a wide list of potential candidates to measure global factors. We show that roughly 50 percent of inflation is explained by global factors; and that the ECB has an impact on the domestic part of inflation. This calls for adjusting the definition of the ECB target to the domestic-driven indicator of inflation which we develop.

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